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Microsoft vs. IBM: a tale of two divergent PC companies: Nowak

Two decades ago, there were two names that really mattered in the computer business: Microsoft and IBM. With the benefit of hindsight, it’s incredible to think about how divergent the paths of the two companies have been, especially in light of a new report that shows already-slowing PC sales are about to drop off a cliff.

Tracking firm IDC originally thought PC shipments would be down just 1.3% this year, but after seeing a free-fall in the first quarter, that estimate has now been revised to a 7.8% decline in 2013. As PC World puts it, that’s “full-blown hemorrhaging.”

The culprit, of course, is mainly mobile—people are doing more on smartphones and tablets and forgoing buying a new PC until they really, really have to, if even then. No wonder that if PC vendors such as Dell, HP and Lenovo aren’t already in a lurch, they’re scrambling to get out of the business. Desktops and laptops may still be useful, but the truth is they’ve been as commoditized as toasters for a while now.

It all makes IBM look particularly smart for getting out of the business while the getting was still good, way back in 2004. The company—which did much to pioneer the PC—saw the hardware commoditization trend coming and rightly reoriented to focus on software and services. How Lenovo, the Chinese company that bought IBM’s PC business, couldn’t foresee the future is anyone’s guess. Then again, the $1.75 billion purchase may ultimately have been worth it for Lenovo, since it did much to establish its name worldwide.

Nevertheless, IBM’s stock price is the best arbiter of that decision to sell. Shares have gone from about $96 at the time of the sale to around $207 today, a 115% increase.

On the flip side is Microsoft, the long-time supplier of software to PC makers. An overwhelming majority of the company’s revenue—about 80%—still comes from the PC business, whether it’s from Windows, Office or server software. In the meantime, the company has missed the boat on just about every major technology trend, from the Internet to smartphones to tablets. It’s now desperately playing catch-up—and falling short—in each.

Microsoft’s share price is also a good arbiter of that decision to stay the course in PCs, and an inability to get current. At the time of the IBM sale, Microsoft shares hovered around $27 and today they are around $34, an increase of 24%. Compared to IBM’s performance, that’s woeful.

Things look even worse when a third company, Apple, is brought into the comparison. At the time of its stock split in 2005, Apple shares were close to $43. Today, they’re up in the stratosphere, around $440. While back then the company got most of its revenue from computers and iPods, today the majority of it comes from the iPhone. As everyone knows by know, Apple’s performance over the past decade is the perfect example of how important product diversification and the creation of new revenue streams is.

Looking at the different performances, it really makes you wonder where Microsoft would be—and more importantly, where society would be—if the company had more of an experimental nature. Would the smartphone and tablet revolutions have happened a lot sooner if Microsoft hadn’t been so afraid to disrupt what was for a while a very lucrative business? Would we all be communicating telepathically through chips in our brains by now?

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